CBB Client Relations & Ethics 3 — Questions and Answers
Question 1: Which of the following best describes the concept of 'informed consent' in a business broker-client relationship?
- The client signs any document the broker prepares without reading it
- The client agrees to representation after being fully informed of the broker's role, duties, and any conflicts (Correct answer)
- The broker obtains the client's verbal agreement before sending a listing agreement
- The client consents to the broker sharing their identity with all prospective buyers
Correct answer: The client agrees to representation after being fully informed of the broker's role, duties, and any conflicts
Informed consent requires clients to fully understand the nature of the representation, the broker's duties, and any potential conflicts before agreeing to proceed.
Question 2: A seller instructs a business broker not to disclose to buyers that the business's primary supplier contract expires in 60 days. How should the broker respond?
- Follow the client's instruction since the seller is the principal
- Explain that this is a material fact requiring disclosure and refuse to withhold it (Correct answer)
- Disclose the information only if a buyer specifically asks about supplier contracts
- Wait until the purchase agreement is signed before revealing the information
Correct answer: Explain that this is a material fact requiring disclosure and refuse to withhold it
An expiring primary supplier contract is a material fact that buyers are entitled to know; brokers cannot ethically conceal it at a client's direction.
Question 3: When a business broker terminates an engagement due to a client's unethical conduct, what document should formally end the relationship?
- A letter of intent
- A termination agreement or written notice of withdrawal (Correct answer)
- A mutual non-disclosure agreement
- A new listing agreement with revised terms
Correct answer: A termination agreement or written notice of withdrawal
A written termination agreement or withdrawal notice creates a clear record that the broker-client relationship has ended and protects the broker from ongoing liability.
Question 4: Which scenario represents a potential conflict of interest that a business broker must disclose?
- The broker is a member of the IBBA
- The broker has a personal financial interest in the business being sold (Correct answer)
- The broker charges a percentage-based commission
- The broker markets the business on a national platform
Correct answer: The broker has a personal financial interest in the business being sold
Any personal financial interest in a listed business creates a conflict of interest that must be disclosed to the client so they can seek independent advice.
Question 5: A buyer presents an all-cash offer below asking price. The seller instructs the broker to reject it without counter-offering. What should the broker do?
- Reject the offer as instructed and move on
- Present the offer to the seller in writing, document the rejection, and advise the seller on the offer's merits before finalizing the decision (Correct answer)
- Secretly negotiate with the buyer to raise the offer before presenting it
- Accept the offer on behalf of the seller to avoid losing the buyer
Correct answer: Present the offer to the seller in writing, document the rejection, and advise the seller on the offer's merits before finalizing the decision
Brokers must present all offers in writing and advise clients on their merits; the final decision rests with the seller, but the broker must ensure the client is fully informed.
Question 6: Under what circumstance may a business broker ethically share a seller's confidential financial information with a third party?
- When the broker believes the third party is a serious buyer
- When the seller provides written authorization or a signed NDA is in place with the recipient (Correct answer)
- When the information is more than two years old
- When the broker is asked by the buyer's lender
Correct answer: When the seller provides written authorization or a signed NDA is in place with the recipient
Confidential financial information may only be shared when the seller has authorized disclosure or the receiving party has executed a non-disclosure agreement.
Question 7: A business broker suspects a buyer is misrepresenting their financial qualifications to secure a deal. What is the appropriate course of action?
- Proceed with the transaction since buyer qualification is not the broker's responsibility
- Notify the seller of the concern and recommend verifying the buyer's financial credentials before proceeding (Correct answer)
- Accept the buyer's representations at face value to avoid slowing the deal
- Report the buyer to local law enforcement immediately
Correct answer: Notify the seller of the concern and recommend verifying the buyer's financial credentials before proceeding
Brokers serving sellers have an obligation to flag concerns about buyer qualification so the seller can make an informed decision about proceeding.
CBB Client Relations & Ethics 3
Which of the following best describes the concept of 'informed consent' in a business broker-client relationship?